What "runway" means
Runway is the number of months you can cover your bills before your money runs out. It's the most useful number to know after a layoff, because it tells you how long you can search for the right job and when you need a plan B.
In practice the gap changes over time: unemployment benefits stop after a set number of weeks, and COBRA or other health coverage ends. So the calculator walks forward one month at a time instead of using a single division.
First steps after a layoff
- File for unemployment right away. Apply with your state's unemployment office in the first week. Benefits usually aren't paid for days before you apply, and many states have a one-week waiting period.
- Sort out health insurance within 60 days. You have 60 days to elect COBRA, and coverage is retroactive once you pay. Losing job-based coverage also opens a special enrollment period for a Marketplace plan, which can be much cheaper depending on your income.
- Read the severance agreement before you sign. Check the payment timing, any release of claims, and whether it affects your unemployment start date in your state.
- Cut the easy things first. Subscriptions, dining out, and pausing extra debt payments buy time without much pain. Keep making minimum payments to protect your credit.
- Don't raid retirement accounts first. Early 401(k) or IRA withdrawals usually cost income tax plus a 10% penalty. You can often roll an old 401(k) into an IRA instead of cashing out.
Taxes on severance and unemployment
Severance is taxed like wages, so enter the amount after withholding. Unemployment benefits are taxable federal income, and in most states. You can ask to have 10% withheld for federal taxes; otherwise, set money aside so tax time isn't a surprise.
Example
Say you have $20,000 in savings and $8,000 of severance after tax, spend $4,500 a month plus $650 for COBRA, and qualify for $450 a week in unemployment for 26 weeks (about $1,755 a month after 10% withholding). For the first six months you draw about $3,395 a month from savings. When benefits end, that jumps to $5,150. Your $28,000 lasts about 7.5 months. Cutting everyday spending by 15% stretches it to about 8.6 months, and a cheaper Marketplace plan instead of COBRA could add more.
Frequently asked questions
How many months of savings should I have if I get laid off?
A common guideline is 3 to 6 months of essential expenses, and more if your industry is slow to hire or you're the only earner. Unemployment benefits and severance can stretch that further.
How long does unemployment last?
Most states pay benefits for up to 26 weeks, but some pay for fewer weeks, and the length can change with the state's unemployment rate. Check your state's labor department website.
How much does COBRA cost?
Under COBRA you pay the full cost of your employer's plan, including the part your employer used to pay, plus up to a 2% administrative fee. It can last up to 18 months after a layoff.
Is COBRA or a Marketplace plan cheaper?
It depends on your income and the plans available. Losing job-based coverage opens a special enrollment period on HealthCare.gov or your state's marketplace, where income-based subsidies may lower the cost.
Is severance taxable?
Yes. Severance is taxed as wages, with federal and usually state income tax plus Social Security and Medicare taxes withheld. Unemployment benefits are also taxable federal income.
Estimates only. Unemployment eligibility, amounts and duration depend on your state and work history. Health insurance costs vary. This calculator does not include state taxes on benefits or one-time costs. Not financial or legal advice. Last updated October 1, 2026.